Perhaps the best trade Vikram Pandit made as a hedge fund manager was selling his firm to Citigroup.
His former hedge fund, Old Lane, was just a year old in 2007, and its performance was lackluster. But the purchase went ahead all the same, costing Citigroup $800 million and personally netting Mr. Pandit $165 million. At the time, the purchase was more about buying Mr. Pandit, a former star Morgan Stanley executive, than it was about adding the roughly $4.5 billion in assets his firm held to Citi's fold.
“This transaction is an investment as much as it is an acquisition,†Charles Prince, then Citigroup's chief executive, said at the time, referring to Mr. Pandit and his team's experience.
The decision, however, turned out to be ill-fated. Mr. Pandit was named Citi chief in late 2007, but the hedge fund continued to underperform. After making a paltry 3 percent return in 2007, Old Lane began to lose money in 2008. Investors, in need of cash, asked for billions back from the fund. Unable to keep the firm afloat, the bank decided to close the hedge fund down in the summer of 2008.
When Mr. Pandit co-founded Old Lane in 2006, he did so with a number of former Morgan Stanley colleagues. The men had left Morgan Stanley in a management shake-up. Mr. Pandit, who was the head of institutional sales and trading, started the firm with his colleagues John Havens and Guru Ramakrishnan, among others.
Given the pedigree of the leadership and the euphoric attitude toward hedge funds at the time, the Old Lane team raised billions to trade the markets. But, according to a Forbes piece, problems started early on for the firm.
Bad bets troubled the first few months out of the gate, and operations proved trying, especially given the fact that none of the team had managed money before. Among the issues: the firm had trouble calculating net asset value, a measure widely used in the hedge fund industry to calculate an investo r's holdings in near real-time.
Nonetheless, when Citi acquired the hedge fund, much of its staff came with it. Mr. Pandit was placed in charge of the alternatives investment group, while Mr. Havens became a leader in the same division.
Mr. Ramakrishnan, however, left after a little more than a year at the banking behemoth to start afresh. He and several other founders of Old Lane started a new hedge fund in late 2009, Meru Capital Partners.
